No abstract

The purpose of this paper is to examine the interest rate transmission mechanism for South Africa as an emerging economy in a pre‐repo and repo system. It explains how the money market rate is transmitted to the retail interest rates both in the long run and short run, and tests the symmetric and asymmetric interest rate pass‐through using the error‐correction model (ECM) and the adjusted ECM‐exponential generalised autoregressive conditional heteroscedasticity (ECM‐EGARCH) (1,1)‐M methodology. This permitted the examination of the impact of interest rate volatility, along with the leverage effect. An incomplete pass‐through is found in the short run. From the entire sample period, a symmetric adjustment is found in the deposit rate, which had upward rigidity adjustment, while an asymmetric adjustment is found in the lending rate, with a downward rigidity adjustment. All the adjustments supported the collusive pricing arrangements. According to the conditional variance estimation of the ECM‐EGARCH (1,1), negative volatility impact and leverage effect are present and influential only in the symmetric deposit interest rate adjustment process in South Africa.

This paper compares the use of repo rate in South Africa during the pre-repo and repo system by trending and comparing the interest rate fluctuations between two selected periods of 1990-1998 and 1998-2010. Using a structural vector autoregressive (SVAR) econometric method to determine the relationship between the repo rate and other selected key macroeconomic variables in South Africa, an improved monetary efficiency was found during the repo period, which can be attributed to the use of an inflation-targeting framework. This is important as it provides a guide to policymakers on how effective the current monetary tool is, and how efficient the South African Reserve Bank (SARB) is in influencing the interbank rate, retail rates and inflation during selective periods.

No abstract

Purpose – The purpose of this paper is to examine and compare the interest rate pass-through among the Brazil, Russia, India, China and South Africa (BRICS) emerging markets. Design/methodology/approach – The paper reviews a general literature on interest rates pass-through by applying a cointegration and asymmetric mean adjustment lag (MAL) error correction methodology (ECM). Findings – A symmetric adjustment is found in Russia, China and South Africa's deposit rate, while an asymmetric adjustment is found in Brazil and India's deposit rate adjustments. The presence of a customer reaction theory is found in Brazil, India, China and South Africa's deposit rate adjustments, while a collusive pricing arrangement is found in Russia. From the lending rate adjustment, a collusive pricing arrangement was found in Brazil, China and South Africa, while a customer reaction theory was found in India and Russia. Research limitations/implications – The sample period used in the study covers a period starting from the formal recognition of BRIC (2001-2010), which limits the data length. Practical implications – The research output and implication can assist monetary policy makers, investors and consumers to monitor BRICS’ central banking, commercial banking and competition behaviour, individually and as a group. The BRICS are potentially heading towards a more financially integrated bloc as multilateral agreements among members increases. This is in the form of Letters of Credit and Memorandum of Understanding. These agreements should boost intra-BRICS financial transactions, investments and trade. Originality/value – This is, to the best of knowledge, the first analysis of BRICS interest rate pass-through using the asymmetric MAL ECM application.